Types of Credit | The FICO Score Mini-Series

Types of Credit Determines 10% of a FICO Score –

This week we bring our FICO Score Mini-Series to a close. If you’ve made it thus far – you are a true patriot!

Over the last several weeks we’ve unpacked 4 of FICO‘s key factors. Today we unpack Types of Credit. Also know as Credit Mix. This last key factor makes up 10% of your credit score.

A lot of folks make types of credit uber complicated, but it doesn’t need to be…

Consider the following breakdown –

Credit Cards

Retail Cards

Installment Loans

Mortgage Loans

Finance Company Accounts

Before we get too far into this, I’d just like to say, it’s not at all necessary to have one-of-each. That’s not how a credit mix works. In fact, it’s possible for an individual to have too many accounts, and inadvertently hurt their FICO Score.

Types of Credit being utilized is important. Being a good steward of both is most important. Consider adding both revolving credit as well as installment loans to your credit profile.

So what type of accounts should I open? What’s the perfect credit mix? Good questions! As a general rule of thumb, it’s never a good idea to open an account you don’t intend to use. Simply having an open line of credit on your account doesn’t immediately qualify you for a better FICO Score. It’s the other 4 key factors – You want to actually utilize the credit, make on-time payments, do this for an extended period of time and eventually get trusted with more.

To answer the questions above – variety is NOT in itself the end goal. It’s about having more than one type of account for FICO to calculate your score. Having a good credit mix is especially helpful to those with very little information on their credit profile. With little information on a credit profile, each and every bit of activity on your existing account will in a way, be held responsible for calculating 10% of your FICO Score. Does that make sense?

Take a look at your own credit profile and determine if you need to improve your credit mix in any way. Believe it or not, credit cards are not the easiest way to build your credit, and having several credit cards from won’t help your credit mix, even if they are issued by different companies.

I recommend diversifying. If you only have credit cards (revolving credit), then apply for a small personal loan. Can’t get a personal loan? Then bring cash and ask your bank for a secure bank loan.

If you’re still looking to diversify ask your why? Always be sure that the accounts you are opening are actually being used to benefit your credit profile and boost your FICO Score.